A therapeutic approach being investigated for a variety of pathologies is tissue regeneration using a patient's own cells. Such studies have been hampered due to the difficulty in growing epithelial cells for prolonged periods in culture. Replicative senescence due to short telomeres and p16 induced by culture stress work together to inhibit cell growth. Forced expression of telomerase (hTERT) can prevent replicative senescence, and expression of the cell cycle protein cdk4 can sequester p16, thereby immortalizing epithelial cells in culture. In the present study, we used this method to immortalize human bronchial epithelial cells (HBECs) to determine whether immortalized HBECs retain the ability to differentiate normally. HBECs were plated atop contracted collagen gels containing lung fibroblasts. This three-dimensional (3D) tissue model was cultured initially submerged, then raised to the air/liquid interface for up to 28 days. Normal differentiation was assessed by the presence of ciliated cells, goblet (mucin-producing) cells, and basal epithelial cells. Scanning electron microscopic observations revealed both ciliated and non-ciliated cells in these 3D tissues. Histological examination revealed the presence of mucin-producing cells, and immunohistochemistry using antibodies against p63 and keratin 14 showed the presence of basal cells. These results demonstrate that immortalized HBECs retain the capacity to differentiate into each of three cell types: basal, mucin-producing, and columnar ciliated epithelial cells. Such cells will be useful cellular reagents for research in aging, cancer progression, as well as normal bronchial epithelial differentiation and will help progress the use of engineered cells to enhance tissue regeneration.